Levi Strauss Boosts Revenue Outlook on Stronger Base
Costs tied to a debt refinancing weighed on second-quarter profits, but the overall picture brightened for Levi’s.
Just as the fashion and retail world seems to be falling apart, things are coming together for Chip Bergh, president and chief executive officer of Levi Strauss & Co.
When Bergh joined the company in 2011, he sought to give it a stronger base beyond its traditional men’s bottoms business. It’s been a steady push — in tops, women’s, in Europe — but the results are finally coming to bear.
In the second quarter, Levi’s women’s segment grew 24 percent — making eight-consecutive quarters of growth and a business that now weighs in at $1 billion annually. Tops grew 39 percent globally in the second quarter, and the direct-to-consumer business expanded by 13 percent, in reported dollars.
All of that led to net revenues gains of 5.6 percent to $1.07 billion in the second quarter. Sales in the Americas increased 2 percent to $602 million, despite a slight decline through U.S. wholesale accounts, while the business in Europe jumped 17 percent to $280 million.
The company took advantage of lower interest rates and refinanced, leading to a $23 million deficit from the early extinguishment of debt.
That pushed Levi’s second-quarter net income down to $17.5 million from $30.7 million, but will save the company $18 million a year in interest expense. Adjusted earnings before interest and taxes rose 7 percent.
In an interview with WWD, Bergh was optimistic about the immediate future but careful not to be overly so.
Levi’s raised its forecast for 2017 revenue growth to a range of 2-4 percent. That’s up the 1 to 3 percent previously projected but still below the recent growth rate.
“We’re buying ourselves a little bit of cushion in case things go a little squirrelly in the second half of the year,” Bergh said.
Levi’s has its trouble spots — the Dockers business is still suffering, but is being updated with new product and department stores continue to lag — but Bergh said continued organic growth is within reach.
“The industry average is three to four tops for every bottom sold,” the ceo noted. “We still sell more bottoms in units than we do tops, we’re not even at one-to-one. The opportunity for us in tops, it’s great.”
Europe also has continued potential, he said.
Levi’s is one of the few major brands to sell directly to Amazon — a step that Nike is about to take with a pilot program — and Bergh said it’s been a good partnership.
“Managing Amazon here, or [Alibaba’s] Tmall in China, managing the marketplace with these pure-play retail partners is an important part of being successful in the market these days,” he said.
He pointed to recent research showing that more Americans use Amazon’s Prime membership service than have landline phones.
“A lot of America shops there,” he said. “They have been an important partner. They are growing. They are one of our fastest-growing customers globally. You’ve got to win with the winning customers and Amazon is clearly a winning customer. They are a big, big machine now and they’ve got enormous amounts of data. They probably know a lot more about the Levi’s customer that’s buying on Amazon than maybe we do.”